COMPLY-Compliance officer fines spur debate over U.S. SEC tactic

Reuters Staff

4 Min Read

(The writer is a Reuters contributor. The opinions expressed are his own.)

By Matt Rybaltowski

Sept 21 (Reuters) - A spate of U.S. Securities and Exchange Commission enforcement cases involving several prominent financial services firms has renewed concerns that compliance officers could be blamed for violations committed by others at their companies.

Now, a group representing financial services industry compliance professionals is demanding clarity. The National Society of Compliance Professionals (NSCP) wants the SEC to set guidelines for its enforcement staff, a step that could curb punishing compliance officers for problems they cannot control, the NSCP says.

“Compliance officers do not operate the business; they advise and support the business,” wrote Lisa Crossley, NSCP executive director, in an August 18 letter to SEC Enforcement Director Andrew Ceresney. NSCP’s concerns include blaming compliance officers for behavior by rogue employees and for directives from unscrupulous superiors.

An SEC spokeswoman declined comment on Ceresney’s behalf.

The NSCP’s request follows two recent SEC cases against compliance officers. In June, Eugene Mason, chief compliance officer (CCO) at SFX Financial Advisory Management Enterprises, Inc, a Live Nation Entertainment Inc unit, agreed to a $25,000 fine for not putting policies and procedures in place that may have detected an alleged total $670,000 theft from three clients by the firm’s former president, Brian Ourand.

Live Nation and Mason, who still works at SFX, declined comment. In 2011, SFX severed ties with Ourand, who could not be reached for comment.

In April, Bartholomew Battista, CCO at Delaware-based BlackRock Advisors, LLC, a BlackRock, Inc unit, agreed to a $60,000 penalty. The SEC had alleged that the firm lacked procedures to address conflicts related to an executive’s family-owned oil and gas exploration company.

BlackRock neither admitted to nor denied the SEC’s findings, but agreed to hire a compliance consultant to conduct a review. Battista will continue to advise BlackRock through December.

The cases sparked differing views between two departing SEC commissioners about a question that has haunted the compliance community for years: Will enforcement cases against compliance officers deter people from taking on the role?

SEC Commissioner Daniel Gallagher, dissenting in both cases, wrote on June 18 of their “troubling message.” CCOs should not “take ownership” of firms’ compliance policies and procedures, which advisers should carry out, wrote Gallagher, a Republican appointee who leaves the SEC in October.

But Commissioner Luis Aguilar, a Democratic appointee also on his way out, defended the agency. The facts show “egregious misconduct,” he wrote in a June 29 public statement.

Both views have merit, Norm Champ, former SEC Investment Management division director, said in an interview. Gallagher is concerned about discouraging compliance officers from doing their jobs, while Aguilar argues that the SEC targets individual CCOs only in extreme instances. Only 90 of the 751 cases against firms since 2009 have involved compliance officers, Aguilar wrote.

NSCP’s Crossley does not expect a pass for compliance officers who “intentionally violate” securities laws. What is not fair, she wrote, is for the SEC to judge what a compliance officer could have done better such as “missing something that could have been caught sooner.”